November 4, 2015

Economic Efficiency and the Law: Distinguishing Form from Substance

  • Richard Wagner

    Distinguished Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics
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Find the paper at SSRN

This essay is written for a Festschrift to commemorate Jürgen Backhaus’s contribution to law and economics in recognition of his long service as Editor of the European Journal of Law and Economics. Scholars of law and economics have long been intrigued by the possibility that legal processes operate to promote economic efficiency. This essay probes the problematical character of the efficiency claim. This appraisal operates by refracting the efficiency claim through Vilfredo Pareto’s (1935) distinction between logical and non-logical action. What results from this refraction is recognition that economic efficiency is an objectively meaningful concept only inside a model of competitive equilibrium. Outside that model, economic efficiency depends on the perspective of a theorizing subject. Economic efficiency pertains to the form of an argument but not to its substance. Efficiency claims are Paretian derivations and not refutable hypotheses.